KALYAN JYOTI SENGUPTA,J. - (1.) The above appeal has been admitted by an order dated 18th January, 2002, by this Court on the following substantial questions of law:- (a) Whether under the mercantile system of accounting, damages awarded by an Arbitrator cannot be allowed as a deduction in the year in which the award is confirmed by the Court merely because an appeal has been filed against the order of the Court in the higher forum? (b) Whether the Tribunal was justified in law in holding that the liability for damages awarded by the Arbitrator and confirmed by the Munsif Court during the previous year relevant to the assessment year 1992-93 was not ascertained during the said assessment year merely because the same was reversed on appeal in a later year with a direction for fresh arbitration?
(2.) The short fact giving rise to preferring the instant appeal is set out hereunder:- The assessee before us filed return of his income on 17th December, 1992 in relation to the assessment year of 1992-93 disclosing total income of Rs. 7,07,300/-. Thereafter a revised return was filed on 22nd July 1993, claiming deduction on account of liabilities arising out of damages for non-performance of commercial contract with the Government, as quantified by the learned Arbitrator and accepted by the appropriate Court. The said damages were quantified by the learned Arbitrator in view of the assessee's inability to supply part of the material as per contract with Punjab State Electricity Board which had claimed damages from the assessee and the same was awarded by the learned Arbitrator. The said award was ultimately made rule of the Court by the appropriate Court at Patiala vide order dated 24th April, 1992 accepting the award of damages of Rs. 2,78,922/- on account of principal, plus interest thereon aggregating to Rs. 3,63,791/-. It was stated that the order of the learned First Court accepting the award was challenged before the Appellate Court, but the appeal was disposed of, when the revised return was filed. The Assessing Officer disallowed the deduction holding that the same was legally permissible liability incurred by the assessee as award had reached its finality.
(3.) Being aggrieved the assessee approached the Commissioner of Income Tax (Appeal) who affirmed the order of the Assessing Officer. Thereafter the matter was taken to the learned Tribunal by subsequent appeal. The learned Tribunal however did interfere with the said two orders of the authorities below who disallowed deduction claimed in relation to the alleged damages which arose out of the arbitration award followed by decree. The learned Tribunal while passing the impugned order took note of the subsequent event that the appellant was successful in the Appellate Court, and the decree accepting award was set aside and the matter was remanded for fresh arbitration.;